CZECH CONSORTIUM NEW OWNER OF VATTENFALL’S LIGNITE BUSINESS

Germany Czech energy company EPH and investment company PPF Investments buys Vattenfall’s lignite business. “An important deal for Vattenfall”, says CEO Magnus Hall.

The agreement was signed in Berlin today, 18 April, and includes all Vattenfall’s lignite plants and mines. Vattenfall’s German hydro power plants that were offered as an option are not part of the deal.

The buyer will take over the lignite business, with all its assets, liabilities and provisions. The assets include cash amounting to a total of 15 billion SEK. The liabilities and provisions, including re-cultivation obligations, amount to a total of 18 billion SEK. Hedges that Vattenfall has made to secure the electricity price for the lignite operations will remain in Vattenfall at a value of
9 billion SEK.

The result of the divestment in Vattenfall’s income statement by Q2 2016 will be in the range of minus 22-27 billion SEK. If Vattenfall were to remain the owner, the total negative impact on Vattenfall’s income statement would be higher than if the business is divested with Vattenfall’s present future price expectations.

“Today we have signed an important deal for Vattenfall. This divestment of our lignite assets is good strategically but also financially given current and expected market conditions. We are now accelerating our shift towards a more sustainable production. The sale means more than 75 percent of our production will be renewable and CO2-lean compared to about 50 percent today”, says Magnus Hall, Vattenfall’s President and CEO.

Was keeping the business ever an option?

“There are always two options, to sell to the best conditions you can get, or keep and run the business in the best possible manner. We have investigated both and found that there is a clear advantage for us to sell. Different operators have naturally different views on the future and I am convinced that lignite will have a role to play in Germany for a quite some time. But we have taken stands for our future direction when it comes to carbon dioxide exposure and therefore it’s for us a step in exactly the right direction to divest.”

What can you say about the new owner, EPH / PPF?

“It is a serious company that will be a good owner with the right knowledge of the business for the future. In addition to operations in Czech Republic, Slovakia, the UK and a number of other countries, they already own lignite mines and plants in Germany, so they know the market and the German politics and know what is expected from them as a responsible owner. I´m convinced that we have chosen the right new owner for this operations.”

The divestment means that Vattenfall can lower its carbon dioxide exposure from more than 80 million tonnes to less than 25 million tonnes per year, but what about Vattenfall’s responsibility for global environment?

”We are absolutely sure that in Germany, the German government wants decide what policy they want to have around their own energy production, and it’s going in the direction of renewables with Energiewende. What will be the role of lignite in that the transition is really up to the German government. What we want to do is to refocus and concentrate on what we believe will be the future energy landscape. Our strategy is to invest as much as we can into renewables and also of course into carbon lean production such as district heating as we think it’s an important part of a sustainable society.“

Vattenfall bought the lignite operations in 2001. In total, has it been a profit or a loss for Vattenfall?

“It has been an operation where we have had a healthy development, but where we have also invested huge amounts of money . When we now close the books with this deal, we see that overall it has been an investment in line with our profitability target. Of course this is to a big part thanks to our committed and skilled employees that made this business healthy for these 15 years. They have done a very good job and it brings me comfort to see that we have managed to find a good new owner for the lignite operation.”

What happens to the 7500 employees in the divested Mining & Generation company?

“They will of course continue the work in the company. In the context of the sale there are also agreements relating to the affected employees. Those do specifically also address the continuation of the company collective-bargaining- and tariff-agreements. Also the continuation of the codetermination and representative participation (e.g. workers councils or representation in supervisory boards) in its current organization will not be impacted by the sale. 

The takeover of the mining and generation assets including the existing mining and pension liabilities is also part of the sale. The provisions are backed by combination of the value of the assets and by significant cash contribution provided to the target companies (Mining and Generation) by Vattenfall in connection with the transaction. Additionally, the buyer has committed to waive any dividends for years to come. It’s important to realise that EPH/PPF is an experienced owner of lignite mines and lignite power plants who knows the situation, the market and how Germany works. And they buy this business because they believe it has a future. But there is also a big challenge to turn this loss making operation around.”

Will there be any layoffs at Vattenfall related to the divestment?

“No. Some joint activities will have to be carved out in the way that some common parts will go with Mining & Generation. Then of course we always have the pressure within Vattenfall to reduce our costs, but that is a separate issue from this.”

What about Vattenfall’s other activities in Germany? What is the plan?

“Germany is one of the cornerstones of our strategy and will remain so. It is big and important for us. We have a big heat operation , we have distribution, wind operations, a sales business with a big and growing customer base of 3 million German customers, and we also have trading activities in the country. So even if 7500 employees leave with the divestment, we still have 7000 people left in our German organisation. This is a considerable part of Vattenfall that we aim to develop and a big part of our investment budget will go to the country. Germany has important opportunities for us and it will be a key market for Vattenfall also in the future.“

 

Before the sale is final, it will be subject to confirmation by Vattenfall’s owner, the Swedish state.

Watch the press conference
A webcast from the press conference in Stockholm will be broadcasted at 16.00 tonight, 18 April. After the press conference the webcast will be available “on demand”.

Watch it here

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